For years hospitals and health systems have been the target of accusations of corporate greed and price gauging as a way to explain the high cost of healthcare. Newspapers, legislators, and researchers have claimed that some hospitals exploit their market share, charge multiples of Medicare, and make healthcare unaffordable for employers and consumers alike.
Many of these perceptions are based on a study, now on its fourth edition, by RAND, a globally recognized research firm whose analyses inform some of the most important and impactful decisions policymakers and leaders can make across a number of influential sectors, from education and sustainability to healthcare. A review of the RAND study by healthcare consulting firm Kaufman Strategic Advisors (KSA), however, found it to be deeply flawed, so it’s wide acceptance as a benchmarking reference has serious implications for healthcare organizations.
Background on the RAND Study
In May 2024, RAND released a study intended to help demystify hospital pricing and bring a new level of transparency to employers as they wade through the many different insurance plans and provider network options available to find the most affordable, high-quality option for their employees.
According to RAND, goals of the study were to:
- Provide a detailed hospital price report that is designed to help employers become better-informed purchasers and stronger advocates on behalf of their employees.
- Illustrate for policymakers, employers that participated in the study, and other employers and employer groups nationwide that it is feasible and worthwhile to use claims data from private health plans to measure and compare hospital prices at a high level of detail by facility and service line.
RAND analyzed claims data from a number of sources, including:
- Health systems participating in employer-sponsored benefits plans from 2020 through 2022
- Self-insured employers and state-based all-payer claims databases from 13 states across the U.S.
- Health plans that agreed to participate
Cumulatively, the study analyzed data for hospital services from over 4,000 hospitals spanning 49 states and Washington D.C.
Findings That Fuel a False & Damaging Narrative
The RAND study breaks down inpatient and outpatient costs for each hospital system evaluated as it compares to Medicare. It assigns a percentage of how much each hospital makes for services above the rates paid by Medicare. Measuring price and evaluating cost between different hospital systems based on services as a percentage of Medicare is a prevalent way to show how expensive one hospital might be compared to another for the same or similar services.
KSA cross-referenced the RAND study with publicly available data from the Annual Report on the Financial Status of Connecticut’s Short Term Acute Care Hospitals, published by the Connecticut Office of Health Strategy (see table below). The comparison revealed a 43 percent average discrepancy between the “relative (private) price for inpatient and outpatient services” as reported by RAND and what was published by Connecticut. The RAND study largely reported that hospitals received higher payments compared to amounts published by the state.
“The methodology of the RAND study is flawed, which means the conclusions are inaccurate,” Nate Kaufman, KSA managing director, told Unlock. “When reports conducted without due diligence are publicized and cited by payors and lawmakers, it portrays select hospitals as having excessively high commercial rates compared to other hospitals and inflates the payments they actually receive for services relative to Medicare.”
At a time when hospitals across the U.S. are facing unprecedented short- and long-term financial challenges, misleading information that perpetuates the perception that hospitals are raking in cushy payments and are sustainably setup to care for today’s patients — and the next generation — is not only false, but dangerous.
How RAND Findings Are Used Against Doctors, Hospitals, & Providers
In addition to being a resource for employers, data of this kind is commonly used as evidence by insurance companies and lawmakers that select hospitals’ commercial rates are inflated relative to other hospitals. Insurance companies cite statistics from reports like the RAND study during contract negotiations, claiming that the data shows that the hospital asking for increased reimbursement in the negotiation is already being paid fairly in comparison to other hospitals in their market and Medicare.
Lawmakers pushing for legislation that will cap payments and “rein in” hospital revenue similarly point to such data, making arguments from the podium that hospitals are reaping payments beyond what is reasonable to benefit their bottom line. Yet that simply isn’t the case, which is why reports like the RAND study pose a threat to the healthcare industry.
“Ultimately, there is great potential for severe and unwarranted consequences for hospitals and providers when decisions that impact policies and pass bills, or shape the outcome of a contract negotiation are based, even in part, by erroneous and misleading data,” Kaufman said. “These reports harm our healthcare providers and further fuel financial destabilization for an industry absolutely critical for the health and wellness of people everywhere, and which is already facing vulnerabilities.”
Kaufman’s analysis calls into question the RAND analysis in other states as well and raises concerns about how RAND validates its conclusions, which are drawn from a small sample size and inconsistent with the Connecticut data and recently published contracted rates from the insurance companies.
Of particular concern is that heavy-hitting industry influencers like employers, business groups, legislators, and regulators use RAND’s invalid conclusions and data to batter hospitals and advance laws and rules that further destabilize the hospitals and services Americans depend on, making the business of healthcare even more challenging for the people who provide vital care in communities throughout the U.S.